Should I buy Ceres Power shares to ride the hydrogen energy boom?

I expect the demand for renewable energy to grow rapidly in the coming years. If that happens, developers of equipment like battery cells could see sales increase. One such company is registered in London Ceres Power (LSE: CWR). So, should I think about adding Ceres Power stock to my portfolio?

Evaluation of the investment case

There are a few things I like about the company’s business model.

First, it has developed some unique intellectual properties when it comes to cell stack technology. This could be an important enabler to develop the storage and use of hydrogen energy.

Another positive element, in my view, is that the company’s licensing system means it should generate royalties as its installed base increases. This could mean that Ceres commercializes its technology in a way that generates significant cash flow, without having to commit its own capital.

Ceres burns cash

But now, although I like the company’s business model in principle, I still have to prove its value in practice.

Last week, the company published its final results and some elements will be concerned if I consider buying Ceres Power shares.

Annual revenue is down 28%. The company has already set expectations for the fall, but for a company in its growth phase, I don’t see a sharp decline in profits as a positive sign.

Operating losses more than doubled to £52m. For a company with a turnover of around £22m, that’s an alarming number in my opinion.

The cash flow statement on the balance sheet is even worse. Net free cash outflow last year was £89m. Meanwhile, cash and cash equivalents at the end of the year were £63m. The company also has short-term investments that can be converted into cash quickly. But if it continues to burn cash at the current rate, I see the risk that shareholders will have to dilute it to raise more funds.

A catalyst for change

Last year’s results didn’t look good to me. But there may be some reason for optimism about this year.

Progress is being made on several joint ventures in China that were initially set to take place last year. Once signed, it can increase the company’s profits. I think if there is news that the contract has been signed, Ceres Power stock may go up in response.

I also continue to feel that the list of sophisticated partners – such as Bosch and Korean companies Prayers – bodes well for future customer demand for Ceres technology.

What I do

I can now buy Ceres Power Shares for less than half of what I had to pay a year ago.

However, I was not tempted. I like the company’s prospects and business model in principle. But I still believe that it can generate huge profits. Last week’s results did nothing to ease my concerns.

I want to see a combination of revenue growth and consistent profitability before putting money into shares. Now at least, both of them are gone, so I’m not buying them.